Large steel mill production workshop, Shanghai, China. China’s national emissions trading scheme (ETS) is already the world’s biggest carbon market. Earlier this month, the Ministry of Ecology and Environment (MEE) published a draft policy stating that by the end of this year, China’s ETS will be expanded from covering only the power sector to also cover steel, aluminium and cement. The new plan will raise the share of national carbon dioxide (CO2) emissions covered by the market from 40% of China’s total to 60%, according to the MEE. Between 2024 and 2026, companies from the three new sectors will receive free allowances for their CO2 emissions, with no cap on total allowances, which represent emissions that the government authorises companies to emit. Allowances will then be tightened from 2027. While the expanded ETS could boost China’s carbon-cutting efforts, analysts tell Carbon Brief that its focus on emissions “intensity” instead of overall emissions is limiting its impact. Adding to the glut Yan Gang , vice-dean of the MEE’s China Academy of Environmental Planning , has told the state-supporting newspaper Economy Daily , that the sectors were chosen in part due to the relative “urgency” of reducing their emissions. However, in contrast to other carbon markets, China’s ETS is based on carbon intensity – the emissions per unit of output – rather than total emissions. This means it has only a limited effect in incentivising less carbon-intensive production. Lauri Myllyvirta , senior fellow at Asia Society Policy Institute ’s China Climate Hub, tells Carbon Brief this is the “fundamental” issue limiting the scheme’s ability to penalise high carbon emitters. He has written on Twitter that this means carbon-intensive enterprises “face a carbon price…a fraction of the price of the emission allowances”, adding that they may even profit from increasing output if […]